Investors Bracing for Weak Forecasts
Investors are bracing for a tidal wave of profit forecasts from U.S. companies this week, and there is a growing belief the flood will bring more bad news.
As fourth-quarter results roll in, investment professionals will mostly skip over last year’s earnings tallies and go straight for forecasts. After disappointing projections from companies, including software maker Microsoft Corp., Wall Street isn’t anticipating much good news.
“People have a pretty good sense of what happened in 2002, so they’re looking to see how 2003 and even 2004 will shape up,” said Peter Gottlieb, portfolio manager for First Albany Asset Management. “The big fear on Wall Street is that the mild, tenuous recovery we’ve had is going to dissipate. I think guidance will be muted.”
Stocks rallied during the first two weeks of the new year as Wall Street bet an economic recovery would cut through the gloom that has hung over stocks for the last three years. But the market snapped that streak this week after companies such as Microsoft cut their earnings and sales forecasts and said business in the tech industry probably will remain soft.
Adding to the dour mood, IBM Corp. said it expected to meet consensus estimates, provided there was a modest recovery in technology spending. But analysts are divided on whether such a rebound will happen, and a slew of Wall Street houses cut their earnings estimates on IBM.
“Bellwethers Microsoft and IBM are reflecting weaknesses in their business,” said Richard Cripps, chief market strategist at Legg Mason Wood Walker. “Part of the economic forecast for the year is dependent upon an improvement in capital spending in business investment, and their outlooks call that into question.”
Next week’s four-day trading period will be the busiest of the fourth-quarter corporate reporting season, according to market research firm Thomson First Call. U.S. stock markets are closed today for the Martin Luther King Jr. holiday.
About 125 companies in the S&P; 500, or a quarter of the index members, are expected to post results, including financial group Citigroup Inc., conglomerate 3M Corp. and carmaker Ford Motor Co., on Tuesday.
“3M will be important because it’s so tied in with the economy,” Gottlieb said.
On Wednesday, earnings reports from drug maker Pfizer Inc. and bank J.P. Morgan Chase & Co. are anticipated, and fast food chain McDonald’s Corp. is expected on Thursday.
To be sure, there are signs of better days ahead. Corporate earnings have bounced off last year’s dismal levels, and economic data have shown signs of strength.
Of the 95 S&P; 500 companies that had posted earnings by Friday, 65% had beaten expectations of Wall Street analysts, First Call said.
Earnings for the quarter are expected to rise by 9.6% from the same quarter a year ago. That’s a far cry from the 21.5% loss in last year’s fourth quarter.
Manufacturing activity has picked up, signaled by the Institute for Supply Management’s report on business conditions. And there are hopes that President Bush’s economic stimulus plan, which includes cutting taxes on dividends, will help stocks and the economy.
But war worries continue to cloud the outlook for stocks, worrying even those investors who are convinced the market has hit bottom.
